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Indonesia: Google in Indonesia


The Indonesian tax authority has spent the past few months conducting an investigation into Google's tax affairs through the company's office in Indonesia. However, Google's parent company, Alphabet, is arguing that Google does not have a permanent establishment (PE) in Indonesia and is not required to establish a PE under the applicable laws and regulations.


Freddy Karyadi

Danny Tanuwijaya

Google has an Indonesian subsidiary that performs the marketing activities in the jurisdiction while all contracts and payments to every transaction are conducted online directly to Google Singapore (Google SG).

The dispute between the internet giant and Indonesian tax authority is about the amount of profits that are booked in Indonesia, and ultimately taxable in Indonesia.

According to local media reports, Google SG provides 4% of its revenue sourced from Indonesia as a commission fee to Google Indonesia.

The Indonesian tax authority claims that the taxes paid by Google should be calculated using the basis of the total earnings generated from the advertisement activities in Indonesia.

To address the issue, the government is making changes to its laws, but the rules are still being prepared.

On March 31 2016, the Minister of Communication and Information issued Circular Letter No. 3 of 2016 (MCI Circular Letter), concerning internet-based applications and/or over the top (OTT) content service providers. The MCI Circular Letter was published to provide an understanding to OTT service providers – like Google – and telecommunications operators on the upcoming OTT regulation, which is still being prepared by the MCI.

The MCI Circular Letter stated that OTT services consist of the following services:

  • Internet-based application services, which provide communication services that include, among others: short messages, voice calls, video calls, chatting, financial and commercial transactions; and

  • Internet-based content service providers, which offer digital information services that include, among others: writings, voices, pictures, animations, music, videos, movies, and games.

Foreign parties providing OTT services should establish PEs in accordance with Indonesian taxation laws.

In relation to the tax for OTT services, the Indonesian tax authority has issued Circular Letter of the Directorate General of Taxation No. SE – 06/PJ/2015, concerning the withholding of income tax on e-commerce transactions, which provides that the obligations to withhold the income tax in e-commerce transactions are applicable to the payment of specified services, among others the provision of time and/or place of the mass media and intermediary services, relating to the online marketplace, classified adverts, daily deals and online retail businesses. For the foreign taxpayer that is not establishing a PE, the tax rate is 20% of its revenue sourced from Indonesia through the above services.

The Indonesian tax authority will also issue a separate regulation that will categorise Google's activity as those that trigger the existence of a PE. The new regulation is still being prepared and no information has been released about when the regulation will be issued or when it will enter into force. The new regulation is said to require Google and other similar businesses to establish a PE in Indonesia. By establishing a PE, the government will require Google to pay the 25% corporate income tax on all of its revenue sourced from Indonesia.

Freddy Karyadi ( and Danny Tanuwijaya (, Jakarta

Ali Budiardjo, Nugroho, Reksodiputro, Law Offices

Tel: +62 21 250 5125


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